Climate 411

API Misses the Mark: Why Refineries Will Do Just Fine Under ACES

By Britt Groosman / Published: August 25, 2009

The American Petroleum Institute (API) recently took a break from hosting anti-cap-and-trade rallies for oil company employees, and used its spare time to put out a study claiming the American Clean Energy and Security Act (ACES) would be unfair to American oil refineries. Unfortunately their study uses some dubious assumptions – and makes some even more questionable claims.

API’s study (carried out by consulting firm Ensys Energy) outlines two major complaints.

  • First, API whines that the bill only sets aside 2.25 percent of emissions allowances for refiners, while the electricity sector gets 35 percent of the available allowances.
  • The second, related claim is that ACES would increase the cost of doing business so much that companies would turn to cheaper overseas refineries instead.

Before we even address those complaints, there’s one thing I have to point out — API is relying on bad modeling and cherry-picked results to create its case.

  • The results quoted in API’s news release come from running a scenario that severely restricts international offsets and allows no expansion of low-carbon technologies beyond what would happen without a clean energy bill. There’s no basis for those assumptions, but they do manage to skew the results to make refineries look more vulnerable.
  • However, if we consider the “basic case” (or, “most likely”) model outcome in Ensys’ report, it is clear that the activity of domestic refineries is expected to increase compared to their current levels.

But let’s ignore the study results for a minute, and just take a look at API’s two complaints.

First, API seems to think refineries are getting picked on because they aren’t getting as many free allowances as the electricity sector. But — they ignore the reasons why the two are not comparable.

  • The electricity sector allowances they’re talking about actually benefit American consumers. The allowances are first handed to local distribution companies, or LDC’s, but the value of the allowances doesn’t stay there. LDCs are required to use the value of those allowances to protect consumers from electricity price increases. Giving allowances to the LDC’s really means giving allowances to American ratepayers.
  • Oil refineries, in contrast, are private companies whose owners are free to pocket any money they get from their emissions allowances. So giving allowances to oil refiners really means — giving money to oil refiners. (API might like those two ideas equally, but no one else does.)

Of course, if the oil refiners were willing to accept the same regulations as utilities, and guarantee that their emissions allowances would be used to lower the price of a gallon of gasoline, that’s an idea worth discussing. API’s study doesn’t put that offer on the table, though.

Second, API says that America could become dangerously dependent on foreign refineries. (API President Jack Gerard says, “Climate legislation should not come at the expense of U.S. economic and energy security.”)

But – U.S. refineries have cornered 90 percent of the market for domestic gasoline. Homegrown refineries dominate the market because there are, inherently, strong cost advantages for domestic production, and little incentive to send business overseas.

  • Different states have different regulations governing oil refining, which favors local businesses and makes it difficult or impossible for foreign refineries to compete.  In fact, in other environmental scenarios, such as emissions standards for cars, industries claimed exactly that – no company could possibly create 50 slightly different products to sell under 50 different state rules, and only local businesses could thrive under those conditions.
  • It’s also significantly easier and cheaper to ship crude oil than refined gasoline. That makes it much more efficient to import crude oil and do the refining right here at home. That’s a physical difference that won’t go away if we pass a clean energy bill.

EDF did our own analysis of the impact of climate legislation on oil refineries.  Here’s what we found:

  • The expected added cost from a clean energy bill, per gallon of refined gasoline, is less than one cent per gallon.
  • Analysis also suggests that refiners can be expected to pass on the majority of any cost increase to their customers.
  • As a result, between 1.4 and 1.7 percent of total allowances would be enough to compensate domestic refineries – in full — for the added costs associated with reducing their process emissions.
  • Since ACES allocates 2.25 percent of allowances to oil refiners, EDF believes the allocations set out in ACES are more than generous.

Given all this, the bill should not affect the competitiveness of American refineries.

A larger problem might be the unfortunate effect of API’s study on the average American consumer. Outside the industry, a lot of people don’t draw a distinction between “oil” and “gasoline.” A quick read of news articles about the study could imply that ACES will increase America’s dependence on foreign oil – when one of the most valuable aspects of the bill is that it will do just the opposite. Under ACES, the EIA predicts that the U.S. would reduce its consumption of oil by 344 million barrels in the year 2030 alone. That’s a vital benefit to our national security as well as our environment.

A whopping amount of our own oil and the imported oil would still be refined into gasoline here, in spite of API’s fears. After all, even their own biased study predicts increasing U.S. refinery activity.  All in all, clean energy legislation is still good for all Americans – including oil refineries.

Also posted in Climate Change Legislation, Setting the Facts Straight / Read 2 Responses

Full Analysis of National Manufacturers Association’s Flawed Study

By Tony Kreindler / Published: August 12, 2009

I promised earlier today in my quick review of the flawed study from the National Association of Manufacturers that a full analysis was on the way. Here it is [PDF].

The analyis concludes, as I said this morning that “assumptions matter — and unrealistic assumptions make for outlandish results.”

Also posted in Climate Change Legislation / Comments are closed

More Manufactured Numbers from the National Association of Manufacturers

By Tony Kreindler / Published: August 12, 2009

The National Association of Manufacturers and the American Council for Capital Formation today continued their campaign of public deception against the American Clean Energy and Security Act with the release of an analysis that purports to show manufacturing declines and job losses if the bill passes.

Problem is, NAM’s numbers are about as trustworthy as the forged letters sent by their allies to members of Congress, which faked opposition to the ACES bill from local community groups. They are no more real that the Birthers’ imaginary Kenyan birth certificate for President Obama, which names a laundry detergent as the registrar. (Really.)

As you know, NAM has a long history of opposing virtually every major environmental law, often using similar bad arguments with flawed data. NAM/ACCF’s study from last year was seriously flawed – it claimed to look at that year’s Lieberman-Warner bill, but it ignored important provisions of the legislation and imposed artificial constraints on the economy’s ability to reduce emissions.

The analysis presumed there would be no banking of emission allowances and only limited use of offsets. The study also artificially constrained the use of renewable energy and carbon capture and storage.

In short, they applied make-believe assumptions to a make-believe bill, and they are doing it again:

  • NAM/ACCF’s conclusions assume that ACES will spur 10 to 25 GW in new nuclear power. Compare that to the Energy Information Administration’s base scenario, which predicts 10 GW without the bill – and as much as 95 GW with the bill.
  • NAM/ACCF assumes that 95 percent of cost-saving offsets will come from domestic projects and five percent from overseas. In fact, ACES provides for a 50-50 split between domestic and international offsets, and the latter are expected to be more cost-effective.

These are but two questionable assumptions from the very few that NAM and ACCF disclosed – from a model with a huge array of inputs. No one will ever know exactly how they reached their numbers, because important details about their analysis and underlying assumptions remain in a black box.

We’ll have a more detailed rebuttal to NAM/ACCF’s claims for you later today.

In the meantime, here’s what we already know from independent, transparent analysis:

  • The Energy Information Administration says the cap on carbon pollution in ACES can be achieved for $83 per year per household – or a dime a day per person. One of the reasons for the affordability is that increases in electricity and natural gas bills of consumers are substantially mitigated through 2025 by the allocation of free allowances to regulated electricity and natural gas distribution companies.
  • The Congressional Budget Office found [PDF] that ACES would cost the average household $175 a year by 2020, or about the cost of a postage stamp per day. The CBO also found that the poorest 20 percent of American households would actually see a net cash gain under the bill of about a $40 in 2020. The study factored in the value of emissions allowances that will be rebated to consumers.
  • The Environmental Protection Agency puts the cost of a carbon cap on at $88-$140 per household per year over the life of the program – or about a dime a day per person. (Sound familiar?)
  • The Energy Information Administration (see above) also says that ACES would reduce our dependence on foreign oil. The U.S. would reduce its consumption of oil by 344 million barrels in the year 2030 alone, a cut of more than 12 percent from predicted imports for the same year without the bill. To put that figure in perspective, 344 million barrels of oil are worth almost $26 billion today.
  • The United States Global Change Research Program found that America will face hundreds of billions of dollars in costs if we don’t take steps to stop climate change. The cost of inaction will include: sea level rise of as much as two feet that will destroy property along our coasts; stronger hurricanes and other storms that will damage cities; and severe droughts that will devastate agricultural sectors.
Also posted in Climate Change Legislation / Read 1 Response

Filling the Gap Left by an Industry Group’s Canceled Announcement

By Sharyn Stein / Published: August 5, 2009

The National Association of Manufacturers (NAM) and the American Council for Capital Formation (ACCF) were scheduled to release their new report on the economic impacts of the climate bill passed by the House today. They had planned a conference call to brief members of the media.

Unfortunately, they canceled – and left participating journalists without a story about the climate bill for today.

To fill that gap, Environmental Defense Fund has compiled some facts about the climate bill (ACES) from the most recent studies and most reputable sources out there. There’s plenty of information available; hopefully this will help journalists meet their deadlines.

  • The Energy Information Administration (EIA) says the cap on carbon pollution in ACES can be achieved for $83 per year per household – or a dime a day per person. One of the reasons for the affordability is that increases in electricity and natural gas bills of consumers are substantially mitigated through 2025 by the allocation of free allowances to regulated electricity and natural gas distribution companies. More about the study.
  • The Congressional Budget Office (CBO) found that ACES would cost the average household $175 a year by 2020, or about the cost of a postage stamp per day. The CBO also found that the poorest 20 percent of American households would actually see a net cash gain under the bill of about $40 in 2020. The study factored in the value of emissions allowances that will be rebated to consumers.
  • The Environmental Protection Agency (EPA) puts the cost of a carbon cap at $88-$140 per household per year over the life of the program – or about a dime a day per person. (Sound familiar?)
  • The Energy Information Administration (see above) also says that ACES would reduce our dependence on foreign oil. The U.S. would reduce its consumption of oil by 344 million barrels in the year 2030 alone, a cut of more than 12 percent from predicted imports for the same year without the bill.  To put that figure in perspective, 344 million barrels of oil are worth almost $26 billion today.
  • The United States Global Change Research Program, better known as the NOAA report, found that America will face hundreds of billions of dollars in costs if we don’t take steps to stop climate change. The cost of inaction will include: sea level rise of as much as two feet that will destroy property along our coasts; stronger hurricanes and other storms that will damage cities; and severe droughts that will devastate agricultural sectors. More highlights from the report.
  • LessCarbonMoreJobs.org shows thousands of U.S. companies that are already working in the energy efficiency or clean energy sectors, and are poised to grow under the carbon cap. EDF created this website to map out, state-by-state, where clean energy jobs are likely to be produced.
  • NAM/ACCF’s study from last year was seriously flawed. It looked at the earlier Lieberman-Warner bill, but it ignored important provisions of the legislation and imposed artificial constraints on the economy’s ability to reduce emissions. The analysis presumed there would be no banking of emission allowances and only limited use of offsets. The study also artificially constrained the use of renewable energy and carbon capture and storage. NAM has a long history of opposing virtually every major environmental law that’s been proposed, often using similar bad arguments with flawed data. Of course, they have a chance to get it right this year- once they finally release their new study.
Posted in Economics / Comments are closed

EIA Analysis: Climate Bill Will Cut America’s Oil Addiction for About a Dime a Day

By Sharyn Stein / Published: August 5, 2009

A just-released analysis from the Energy Information Administration (EIA) says the cap on carbon pollution in the American Clean Energy and Security Act of 2009 (H.R. 2454) can be achieved for $83 per year per household – or a dime a day per person.

One of the reasons it’s so affordable is that increases in consumers’ electricity and natural gas bills are substantially mitigated through 2025 by the allocation of free allowances to regulated electricity and natural gas distribution companies.

Nat Keohane, EDF’s director of economic policy and analysis, says this:

This analysis confirms what every other credible study has found, and it – once again – refutes the widely reported scare tactics about the cost of the cap and trade bill. Opponents of action will always try to cherry-pick the numbers and use models with biased assumptions. The EPA, EIA and CBO are the non-biased standard for economic analysis.

For a dime a day we can solve climate change, invest in a clean energy future, and save billions in imported oil.

The analysis also shows that the climate bill passed by the House would reduce our dependence on foreign oil – the U.S. would reduce its consumption of oil by 344 million barrels in the year 2030 alone, under the provisions of the bill. That’s a cut of more than 12 percent of predicted imports for the same year without the bill.

Other key points about the EIA analysis:

  • It considers only the costs of reducing global warming pollution, and does not take into account the many potential benefits.
  • It has similar findings to two other impartial and substantive studies done recently, from the Environmental Protection Agency and the Congressional Budget Office.
  • A leaked draft of the EIA report, which was covered in some early media stories, contained an error. The average yearly change in consumption per household for the years 2012-2030 is $83 — NOT $142. The correct figure is in the final version.
Also posted in Climate Change Legislation / Read 5 Responses

Four Reasons to Use Cap and Trade to Fight Global Warming

By Nat Keohane / Published: July 15, 2009

Michael Oppenheimer and I have a post up on Huffington Post that explains why cap and trade is more effective than a tax at slowing and eventually halting global warming.

Here are just the highlights:

  1. Environmental certainty. Let’s keep our eyes on the prize: avoiding dangerous climate change. A legally binding cap is the only way to assure that this objective will actually be attained.
  2. International opportunity. The atmosphere is indifferent to where carbon dioxide, the main greenhouse gas, is emitted. The ultimate goal, once countries like China and Brazil have adequate systems for monitoring their emissions, is a global carbon market — benefiting both the developing countries and the industrialized countries.
  3. The market, not the government, sets the price. Cap and trade is a smart division of labor: Congress sets the cap, and the market sets the price on carbon needed to achieve it.
  4. Political viability. In our view, cap and trade is the best policy on the merits. But it is also the politically viable path. A recent survey shows that of all regulatory approaches, the public likes taxes least.

Each of these reasons are explained in more detail on Huffington Post. Take a look and add to the comments!

Also posted in Policy / Read 1 Response